EPA’s Clean Energy Incentive Program: Background and Legal Developments

Summary

In 2015, the U.S. Environmental Protection Agency (EPA) established the Clean Energy Incentive Program (CEIP) as a voluntary complement to its regulatory program known as the Clean Power Plan (CPP). The goal of the CPP is to reduce carbon dioxide (CO2) emissions from existing fossil-fuel-fired electric power plants, which produced 30% of all U.S. greenhouse gas emissions in 2014. The CEIP would support that objective by promoting CO2 emission reductions before the CPP is scheduled to take effect in 2022.

The CEIP is a voluntary program that would encourage states to develop energy efficiency measures and renewable energy projects. To participate, a state would need to include specific design elements in its CPP state plan that is submitted to EPA for approval. The CEIP would establish a system to award either emission rate credits (measured in pounds of CO2 emissions per megawatt-hour) or emission allowances (measured in tons of CO2 emissions) that can be used to meet state emission reduction targets for two categories of activities:

Energy efficiency and solar renewable energy projects in low-income communities, and

Renewable energy projects in participating states.

Renewable energy projects would receive one credit/allowance from the state and one credit from EPA for every two megawatt-hour of renewable energy generation. Projects in low-income communities would receive double credits. Under a mass-based approach, EPA would match up to the equivalent of 300 million emission allowances nationally: Half of the credits/allowances would support renewable energy projects, and half would support energy efficiency and solar energy projects in low-income communities. The amount of EPA credits/allowances potentially available to each state participating in the CEIP would depend on the relative amount of emission reduction each state is required to achieve under the CPP. Thus, states with greater reduction requirements would have access to a greater share of the EPA credits.

EPA’s CPP has generated significant interest from Congress and a wide range of stakeholders. Some Members in the 114th Congress have made several attempts to prevent the implementation of the CPP and more recently the CEIP. In particular, both the Senate and the House passed a resolution of disapproval pursuant to the Congressional Review Act, which President Obama vetoed in December 2015. In July 2016, the House passed H.R. 5538 (Department of the Interior, Environment, and Related Agencies Appropriations Act, 2017), which would prohibit EPA from using appropriations to “finalize, implement, administer, or enforce” the CEIP proposed rule.

The CPP is the subject of ongoing litigation involving most states and over 100 entities. In February 2016, the Supreme Court stayed the implementation of the rule for the duration of the litigation. The CPP final rule therefore currently lacks enforceability or legal effect, and if the rule is ultimately upheld, some of the deadlines would likely be delayed.

EPA published the CEIP proposed rule in June 2016 to provide additional implementation details for states wishing to participate in the program. EPA’s release of the CEIP proposed rule has raised questions regarding the agency’s legal authority to move forward with the CEIP while the CPP is stayed. Although some argue that the stay requires EPA to “put its pencil down” and stop all work related to the CPP, EPA believes that it has sufficient authority to move forward with rulemakings that relate to the stayed CPP. To support this assertion, EPA points to several instances when it continued to revise provisions related to previously stayed regulations. However, there are few judicial opinions that address the types of activities allowed during a judicial stay.